Gold spikes higher as Fed Reserve Board credit rate cut hurts dollar

BY

Gold rose sharply in early afternoon trade after the Federal Reserve Board announced it has cut
its discount rate on loans to banks in response to the current crisis in the global credit markets, knocking the dollar.

The board approved a 50 basis point reduction in the primary credit rate to 5-3/4 pct, saying
increased economic uncertainty illustrated by the sharp falls seen in share prices in recent days
poses risks for US business growth.

The news sent the dollar lower, consequently boosting gold. Immediatoldy after the move was announced the euro rose to 1.3509 against the US currency, up from 1.3465 usd previously,
while the pound rose to 1.9881 usd from 1.9815 usd previously.

The precious metal is typically seen as an alternative investment to the dollar and moves in an
inverse relationship to it.

Amigo

Thanks!!

BY

Federal Reserve Approves Half-Percentage Point Cut in Discount Rate on Loans to Banks

The Federal Reserve, declaring that increased economic uncertainty poses risks for U.S. business growth, announced Friday that it has approved a half-percentage point cut in its discount rate
on loans to banks.

The action was the most dramatic effort yet by the central bank to restore calm to global
financial markets which have been roiled in the past week by a widening credit crisis.

The decision means that the discount rate, the interest rate that the Fed charges to make
direct loans to banks will be lowered to 5.75 percent, down from 6.25 percent.

The Fed did not change its target for the more important federal funds rate, which has
remained at 5.25 percent for more than a year.

However, it has been infusing billions of dollars in money into the banking system over the past week to keep that rate from rising above the target level.

In premarket trading, U.S. stock futures reversed previous declines after the Fed's
announcement.

Many economists believe if the financial market crisis worsens the Fed will soon move to cut the federal funds rate as well.

In a statement explaining the board's action, Federal Reserve Chairman Ben Bernanke and his
colleagues said that while incoming data suggest the economy is continuing to expand at a
moderate pace, "the downside risks to growth have increased appreciably."

White House deputy press secretary Tony Fratto declined to comment on the announcement
but said, "We have full confidence in the Federal Reserve on these issues and respect their
independence."

The Fed said it was "monitoring the situation and is prepared to act as needed to mitigate the
adverse effects on the economy arising from the disruptions in financial markets."

The Fed said that "financial market conditions have deteriorated and tighter credit conditions
and increased uncertainty have the potential to restrain economic growth going forward."

The policy announcment was approved unanimously by the Federal Open Market Committee,
the group of Fed board members in Washington and Fed regional bank presidents who set the
federal funds rate.

Many economists have been calling for the Fed to move to cut the target for the federal funds
rate, which has been at 5.25 percent since June 2006.

The discount rate covers only loans that the Fed makes directly to banks.
But the funds rate covers all loans that banks make to each other on a short-term basis. It is
much more critical in determining interest rates in the economy such as banks' prime lending
rate.

The nation's once high-flying housing market is sinking deeper into gloom, and credit, the lifeblood of the economy, is drying up. Many economists believe these problems, including declining
consumer confidence, could lead to a recession.

Since setting a record close of 14,000.41 just a month ago, the Dow Jones industrial average
has shed 1,154.63 points in a string of triple-digit losing days that have raised anxiety levels not
just on Wall Street but on Main Street as well.

The markets have been pummeled by a rapidly spreading credit crisis that began with rising
defaults in subprime mortgages -- home loans made to people with weak credit histories. Now
the problems are spreading to other borrowers.

Countrywide Financial Corp., the nation's largest mortgage banker, was forced to borrow $11.5 billion on Thursday so it could keep making home loans. It was a move that rattled investors
who have watched a number of smaller mortgage companies go under because of credit
problems.

The shockwaves have extended to giant Wall Street investment firms such as Goldman Sachs, which announced earlier this week that it was pumping $2 billion into one of its struggling
hedge funds and was asking other investors put to put in another $1 billion. BNP Paribas,
France's largest bank, last week froze three funds that had invested in the troubled U.S.
mortgage market.

The Fed and other central banks already had infused the banking system with billions of dollars in an effort to keep short-term interest rates from surging and making credit even more difficult to obtain. However, those billions did not calm investors worried about which big hedge fund or
mortgage company will be the next to announce serious problems. For that reason, investors
have become fearful to supply money through credit markets to companies even if they have
strong credit records.

BC1410

thanks!